IMF says UK is no longer heading for a recession in 2023
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[May 23, 2023] By
David Milliken
LONDON (Reuters) -The International Monetary Fund no longer expects
Britain's economy to fall into a recession this year, it said on
Tuesday, praising the steps taken by Britain's government to stabilise
the economy and fight inflation.
The IMF said British gross domestic product now looks set to grow by
0.4% in 2023, upgrading forecasts made in April, when it had expected a
contraction of 0.3%, the weakest outlook of any major economy.
While the IMF warned that the outlook for the UK remains subdued, it
said the government was on the right track, in contrast to its concerns
about the direction of policy under former Prime Minister Liz Truss.
"The UK authorities have taken decisive and responsible steps in recent
months," IMF Managing Director Kristalina Georgieva told a press
conference on Tuesday.
"What we see is that the government is prioritising, and rightly so, the
fight against inflation."
The Fund said the improved outlook reflected the unexpected resilience
of demand, helped in part by faster than usual pay growth, higher
government spending and improved business confidence.
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The fall in soaring energy costs and the normalisation of global supply
chains had also helped, it said.
"The outlook for growth, while improving somewhat in recent months,
remains subdued," the IMF said.
"Economic activity has slowed significantly from last year and inflation
remains stubbornly high following the severe terms-of-trade shock due to
Russia's war in Ukraine and, to some extent, labour supply scarring from
the pandemic," it added.
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People shop on Oxford Street in London,
Britain April 10, 2023. REUTERS/Anna Gordon
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British inflation was likely to fall to around 5% by the end of this
year from more than 10% in March, and should return to its 2% target
by the middle of 2025 - broadly in line with forecasts from the Bank
of England earlier this month.
The economy was likely to grow by 1% in 2024 and 2% in the following
two years, before returning to a long-run growth rate of around
1.5%, the IMF forecast.
Britain's growth potential could be improved by measures to tackle
the impact of long-term illness on the labour force and reducing
policy and regulatory uncertainty which harmed business investment,
the IMF added.
A recently revised agreement with the European Union on post-Brexit
trade involving Northern Ireland and a "more measured" approach to
scrapping EU law should encourage business investment, it said.
The IMF said further persistence in inflation and accompanying
unsustainable increases in wages were the biggest near-term threats
to Britain's economic outlook and that the BoE should ensure
monetary policy remained tight.
"This said, elevated uncertainty about the macroeconomic outlook and
inflation persistence merits continuous review of the pace and
magnitude of monetary tightening," the IMF added.
The BoE has raised borrowing costs at 12 consecutive meetings,
taking rates to 4.5% this month, and financial markets see them
peaking at 5% later this year.
(Reporting by David Milliken; Editing by William Schomberg, Conor
Humphries and Christina Fincher)
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